Reckitt to divest Chinese infant formula business to Primavera for $2.2bn

Reckitt Benckiser Group (Reckitt) has entered a definitive agreement to sell its Infant Formula and Child Nutrition in China (IFCN China) business to Primavera Capital Group (Primavera) for an enterprise value of $2.2bn.

Reckitt said that it will retain an 8% stake in IFCN China and expects cash proceeds of approximately $1.3bn from this deal, which will be used to reduce its net debt.

The proceeds will also reduce the company’s December 2020 net debt / adjusted EBITDA ratio by nearly 0.2x to 2.2x.

Earlier this year, Reckitt reviewed its baby formula business in Greater China, four years after it was acquired from Enfamil infant formula manufacturer Mead Johnson in 2017 for $17.9bn.

Reckitt CEO Laxman Narasimhan said: “Today’s announcement marks another step in our strategy to rejuvenate growth and create long term value. As part of this journey, we are actively, and decisively, managing our portfolio.

“After a thorough review of IFCN China, we have found an excellent home for the business under the ownership of Primavera. As a result of this transaction, our Nutrition business going forward will have a better and more consistent growth and margin profile.”

Under the deal, Primavera will acquire the manufacturing plants in Nijmegen, the Netherlands; and Guangzhou, China.

The agreement also includes a royalty-free perpetual and exclusive licence of the Mead Johnson and Enfa family of brands in China.

Primavera founder and chairman Dr Fred Hu said: “We look forward to a strong collaboration with Reckitt, to continue to build on the heritage and strength of the Mead Johnson brand.”

Completion of the deal is subject to consultation with Reckitt’s works council in the Netherlands. Reckitt also intends to initiate talks with other relevant employee unions in relation to the transaction.

The deal is expected to close in the second half of this year.

Upon completion of the deal, Reckitt will continue to own the Mead Johnson and Enfa family of brands. It will operate these brands in the rest of the world.

After reaching a definitive agreement to divest IFCN China business, Reckitt has started segregated its IFCN net assets geographically for accounting purposes.

It has allocated $4.8bn (£3.4bn) to China and $7.6bn (£5.4bn) to North America and the rest of the world. As of December 2020, IFCN’s net assets totalled £8.8bn on a global basis.

For the financial year ended 31 December 2020, IFCN China had net revenues of £861m, operating profit of £85m and gross assets stood at £5.4bn.